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A conjecture on the distribution of firm profit

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  • Ian Wright

Abstract

A common assumption of political economy is that profit rates across firms or sectors tend to uniformity, and often models are formulated in which this tendency is assumed to have been realised. But in reality this tendency is never realised and the distribution of firm profits is not degenerate but skewed to the right. The mode is less than the mean and super-profits are present. To understand the distribution of firm profits a general probabilistic argument is sketched that yields a candidate functional form. The overall properties of the derived distribution are qualitatively consistent with empirical measures, although there is more work to be done.

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  • Ian Wright, 2004. "A conjecture on the distribution of firm profit," Papers cond-mat/0407687, arXiv.org, revised Mar 2011.
  • Handle: RePEc:arx:papers:cond-mat/0407687
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    References listed on IDEAS

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    1. Gaffeo, Edoardo & Gallegati, Mauro & Palestrini, Antonio, 2003. "On the size distribution of firms: additional evidence from the G7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 117-123.
    2. Fujiwara, Yoshi & Di Guilmi, Corrado & Aoyama, Hideaki & Gallegati, Mauro & Souma, Wataru, 2004. "Do Pareto–Zipf and Gibrat laws hold true? An analysis with European firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 335(1), pages 197-216.
    3. Wright, Ian, 2005. "The social architecture of capitalism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 589-620.
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    Cited by:

    1. Wright, Ian, 2009. "Implicit Microfoundations for Macroeconomics," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-27.
    2. Greenblatt, R.E., 2013. "Rates of profit as correlated sums of random variables," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(20), pages 5006-5018.
    3. Williams, Michael A. & Baek, Grace & Park, Leslie Y. & Zhao, Wei, 2016. "Global evidence on the distribution of economic profit rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 458(C), pages 356-363.

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